Dollar Down ahead of U.S. inflation data

In Asia on Friday morning, the dollar slumped ahead of U.S. inflation data, which could signal when the Federal Reserve would hike interest rates. The Chinese yuan also fell sharply for the first time in months after authorities intervened to halt its recent rally.

The U.S. Dollar Index, which measures the greenback against a basket of other currencies, had fallen 0.07 percent to 96.183. 

Investors are also looking forward to the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan making policy decisions next week. Traders are anticipating a higher CPI reading, which would confirm the Fed’s decision to raise the pace of its quantitative easing program.

Meanwhile, on Thursday, the People’s Bank of China raised foreign exchange reserve requirements for the second time since June 2021, leading the yuan to tumble by approximately half a percent in offshore trade. The move will also encourage yuan selling, stopping a rally that has lifted the Chinese currency by more than 2% against the U.S. dollar since late July 2021.

Currencies

The USD/CNY pair fell 0.15 percent to 6.3678, while the USD/JPY pair rose 0.06 percent to 113.50.

The AUD/USD pair rose 0.07 percent to 0.7154.

The NZD/USD pair rose 0.10 percent to 0.6800. The GBP/USD exchange rate increased by 0.06% to 1.3226.

The U.S. dollar is heading for its seventh consecutive weekly gain ahead of U.S. data, which includes the consumer price index and is due later in the day.

Inflation will accelerate; economist Tom Porcelli predicts that the annual rate will approach 7% in early 2022.

As a result, we feel that combination means an increase in March 2022 is highly likely. The market now prices in a 40% likelihood of that happening, but we now believe it’s a bit higher. It’s probably more like a coin flip now, he added.